Brazil's Vale Joins "Avatar" Battle as Belo Monte Dam Investor

Location of the Belo Monte dam on the Xingu River, a tributary of the Amazon. Brazilian mining company Vale announced on April 28 that it would acquire a 9% stake in the project and join the consortium of companies that will eventually build the estimated $9.2 billion hydroelectric power station, arguably the most controversial dam project in the world after the construction of China's Three Gorges Dam.

Brazil's biggest mining company Vale (VALE) announced after market hours Thursday that it will invest an estimated $2 billion in the world's most controversial hydroelectric dam project: the $9.2 billion Belo Monte dam in the Brazilian Amazon state of Para.

Vale's CEO, Roger Agnelli, said in a statement that, "the acquisition of a stake in the Belo Monte project is consistent with our growth strategy, contributing to a secure supply of energy for Vale and the creation of added value for our shareholders as a self-reliant energy producer."

Vale will now take a 9.2% stake in Belo Monte's consortium, Norte Energia, filling the gap left behind by private equity firm Gaia Partners, who left the Norte Energia consortium late last year.

Vale's interest in Belo Monte is not surprising, nor is it new. The company runs 9 hydroelectric dams in Brazil and three in Indonesia, including the new, and small 90 megawatt Karebbe dam. That $180 million Karebbe dam is expected to help miners like Vale boost nickel production to about 200 million pounds per year. But Belo Monte is a behemoth by comparison. When built, it will be the third largest hydroelectric power station in the world, second only to Three Gorges in China and Brazil's own Itaipu, which it runs with Paraguay. Belo Monte will have the installed capacity to produce 11,200 megawatts of electricity, while Itaipu has capacity to produce around 14,000 megawatts and Three Gorges is around 22,000 megawatts at full capacity.

Of course, no dam ever runs at full capacity and because of the rise and fall of Amazon rivers during the dry seasons, the Belo Monte dam is expected to average around 4,500 megawatts, making it still one of the most powerful generators of electricity in the country, and very important for mining operations in Para state.

Para is one of Brazil's biggest states, and most desolate. It is also home to a large swath of virgin rainforest and Belo will be built along the Xingu River, smack dab in the middle of that forest. A few hundred acres of rainforest will be flooded to form the reservoir and part of the Xingu will be diverted to drive the river into the dam, moving the turbines that will generate electricity for Brazil starting at some time in 2015.

Around 9 injunctions are currently out against Norte Energia, all filed by attorneys general in Para state, citing various problems with environmental licensing. Nearly all of the native tribes in the region are against the dam, though no tribes will have to relocate because of its construction. Around 20,000 people in neighboring towns will be forced to relocate.

Norte Energia said Friday morning that it had created a permanent commission with affected people along the Xingu River, most of them small property owners, farmers and a director of one Amazon based sustainable development research center. The move is an effort to build a consensus about how to relocate and compensate people going forward. The company said 1,400 properties will have to be expropriated to build the dam.

Norte Energia is required to invest nearly $1 billion in various infrastructure projects for towns affected by Belo Monte, such as hospital improvements, roads, water, sewer and housing for those who will have to move, especially. The costly project remains in limbo because Norte Energia has been unable to tap the financing it needs to meet all 40 environmental prerequisities before it starts building the dam. It has yet to meet 16 of them, according to environmental regulator Ibama.

The dam was criticized by the Organization of American States last month on human rights grounds, charging that Brazil's government did not properly listen to native tribes and locals regarding environmental and social impacts the dam would have on their lives as it is being built, and possibly after its construction. The government's Foreign Affairs Ministry dismissed OAS's complaints as unfounded.

US celebrities like Sigourney Weaver and James Cameron have been the most vocal supporters of indigenous rights and local movements against Belo Monte. Late last year, Cameron released the Message from Pandora short documentary about Belo Monte, comparing it to the indigenous fight against large state-corporate interests in the movie "Avatar".

Vale was originally part of a bidding consortium to acquire the rights to own and operate Belo Monte in April of last year. It lost the bid to Norte Energia, which is a consortium mostly of Brazilian owned electric power companies.

There is some speculation that Vale's rich cash flow -- around $9 billion as of the fourth quarter -- could help Norte Energia out of its financial limbo, thus allowing the company to finance the build-out requirements of Ibama. Once those 40 requirements have been satisfied, then Ibama will grant a full installation license and the massive Brazilian National Development Bank (BNDES) will likely step in with a bridge loan to get the project started. BNDES director of infrastructure and signatory to the loan deals with Norte Energia, Nelson Stiffert, has stated numerous times on the record Belo Monte was an important development project for Brazil and must get built, though within the social and environmental guidelines set forth by Ibama.

I've spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes.